• U/G to BUY from Neutral, new MYR6.67 TP (DCF) from MYR5.14, 11% upside, c.1% FY25F yield. We believe the narrowing surplus and increasing demand for aluminium will further drive up LME aluminium ASPs. Consequently, we expect strong growth momentum to continue into 2Q24, driven by higher ASPs. Our DCF-derived TP implies 27.5x2025F P/E vs the 5-year mean of 25.5x – predicated by increasing awareness towards lower- carbon footprints smelters and the gradual recovery in global demand. This report marks the transfer of Press Metal coverage to Cindy Lee.

• We expect double-digit YoY bottomline growth to continue in 2Q24, supported by an 11.5% rise in aluminium ASPs and 28.7% jump in Major Japan Port or MJP spot premiums due to rising Asian demand. On the raw materials side, alumina prices (c.35% of smelting costs) remain high amid tight supply at USD430.90/tonne (+25.1% YoY). Carbon anode prices have dropped 16.8% YoY to CNY3,922.50/tonne from CNY4,717.10 a year ago, according to Bloomberg. We expect net margins to hover around the low double-digits.

• Bloomberg Intelligence forecasts a narrowing surplus and price uptick in aluminium through 2025. It predicts the global aluminium surplus to shrink in 2024 and potentially shift to a deficit by 2025 on: i) Slow capacity expansions in Indonesia, ii) increased demand from green sectors like solar and EVs, and iii) a rebound in construction activities outside China. The construction – which accounted for 22% of global aluminium demand in 2023 – and transportation (the largest downstream segment at 28%) sectors are pivotal to the demand recovery. This is supported by 4% YoY growth in aluminium production in 5MFY24 based on International Aluminium Institute data. That said, global aluminium demand is projected to rise 3.2% in 2024 and 2.4% in 2025. Additionally, the US increased tariffs on Chinese aluminium imports from 7.5% to 25%, which may lead to higher LME aluminium prices too. Average 2Q24 LME aluminium price: USD2,523/tonne.

• Forecasts lifted. We revise our FY24F-26F LME aluminium spot prices to USD2,350, USD2,400, and USD2,500/tonne (Figure 2). We also take onboard that PMAH hedged its aluminium ASPs as follows: 40% at USD2,500 for FY24, 30% at USD2,600 for FY25, and 25% at USD2,700 for FY26. As a result, our earnings projections have increased by 6-18%. Consequently, we derive a TP of MYR6.67 with an 8% ESG premium baked in, which implies a FY25F P/E ratio of 27.5x. We believe this is reasonable, as it is only slightly above the 5-year forward P/E of 25.5x. We are optimistic about the aluminium market, driven by increasing demand from the EV and solar sectors, recovery of global trade activities, and increasing awareness towards lower-carbon footprints smelters.

Source: RHB Research - 18 Jul 2024